Understanding economics reveals that for-profit hospitals often take on a higher number of costly patients. Contrary to the criticism of free markets, a recent study from the National Bureau of Economic Research suggests that for-profit hospitals do not engage in the practice of “cream-skimming” as commonly believed. In fact, the study found that for-profit hospitals tend to treat costlier patients compared to non-profit hospitals, showcasing superior efficiency in containing costs.
This result may seem counterintuitive at first, but it aligns with the principles of market economics. For-profit hospitals, driven by self-interest, aim to maximize revenue by providing valuable services and minimize costs through efficient production. By taking on costly patients, for-profit hospitals have an incentive to improve efficiency related to expensive treatments, ultimately serving more customers.
The reputation of for-profit hospitals also plays a role in their decision to cater to higher-cost patients. Just like big retailers prioritize customer service to maintain a positive image, for-profit hospitals may choose to be generous with costly patients to uphold their reputation and avoid financial losses.
This behavior reflects Adam Smith’s concept of the invisible hand of the market, where individual self-interest leads to outcomes that benefit society as a whole. In the case of for-profit hospitals, serving costlier patients aligns with their profit-driven motives and contributes to overall market efficiency.
In his work “An Inquiry into the Nature and Causes of the Wealth of Nations,” Adam Smith discusses how individuals, in pursuing their own security and gain, unintentionally contribute to the greater good through the concept of the invisible hand. This idea suggests that by focusing on maximizing value through industry, individuals inadvertently promote outcomes that benefit society as a whole.
Despite arguments that healthcare should not be subject to market forces due to its importance, the principle of the invisible hand and the positive impact of market-driven human flourishing suggest otherwise. The evidence points to the idea that healthcare, being a crucial aspect of human well-being, should indeed be influenced by market dynamics for the betterment of society.
This perspective challenges traditional views on the role of markets in healthcare and underscores the potential benefits of aligning healthcare with market forces. By recognizing the potential for market-driven innovation and efficiency in healthcare, we can work towards improving access, quality, and outcomes for all individuals.
This article was originally published on FEE and reflects the opinions of the author. The views expressed do not necessarily represent those of The Epoch Times.
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